Banking & Financial Institutions
- One of the top five European banks
Situation and Objectives
- In a scenario of low interest rates and high levels of competition, where squeezed margins jeopardized the whole bank’s profitability, our client had turned its attention towards pricing management in its Corporate & Investment Banking division.
- The pricing practices were based on a pure cost-plus approach, where margins charged to the client neither reflected a strategy nor did they reveal the wider scope of price itself as commercial leverage.
- High misalignment between discounts and the clients’ value or risk level indicated a lack of control over final prices offered to clients.
- Lastly, the pricing process was managed entirely through an outdated stand-alone tool, which did not provide any insights into the overall relationship with each client.
- Developed a holistic pricing model for C&IB lending products, considering strategic goals, internal and external market prices.
- Pricing logic shifted from a purely risk-based approach towards a value-based model. Thus, instead of focusing only on the cost recovery of single transactions, pricing now considered the whole customer relationship.
- Defined strategic guidelines for key client and product segments (with top management) and translated the strategy into actual price points.
- For transactions closed below their supposed price, the pricing model contained a compensation mechanism with trade-offs between lending products and cross-selling solutions.
- Prepared implementation of the pricing model online, integrating the tool with the bank’s CRM, approval workflow, and monitoring system.
Relationship Pricing Model
- The project increased the bank’s sensitivity to pricing culture and supported management in optimizing the capital allocated to the clients, products, and areas considered strategic for the bank.
- The initiative created a direct link between the bank’s strategic objectives in terms of its market positioning and pricing policy.
- By completely integrating the pricing models into user friendly tools, the salesforce was able to perform pricing simulations without increasing the operational effort.
- Increased C&IB division’s risk-adjusted profitability by +0.3 percentage points on a yearly basis.
- Enhanced pricing transparency obtained by monitoring billions of Euros of deals every month.
- Immediate reaction of pricing policy to changes in market conditions, much faster than competitors.